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Report of the President
To the Stockholders: 
Submitted herewith are the company's Profit and Loss statement for the year 1947, and the balance sheet as of December 31, 1947, certified by Arthur Young and Company, independent public accountants. There is also submitted a comparative statement of traffic, revenue and expenses statistics for the years 1944 through 1947. 
The total operating revenue for the year 1947 (including operations from New York and Washington to Bermuda during the five months August 1 through December 31) amounted to $3,457,335 as compared with operating revenue in 1946 of $3,353,208 derived from domestic route operations alone. the loss from operations in 1947 amounted to $871,638 as compared with an operating loss of $439,974 in 1946. The losses for both years are overstated in that the company has not been paid permanent compensatory mail rates for services performed over its entire domestic system during the period April 1946 and 1947. The Civil Aeronautics Board has now had under consideration for almost two years the establishment of a fair and reasonable permanent mail rate for Colonial's domestic system as required by Section 406 of the Civil Aeronautics Act. Until the Board established a permanent system mail rate effective retroactively to April 1946, your Company will be unable to determine the full amount of mail service compensation to which it is entitled for the years 1946 and 1947. The Company has received and accounted for such mail compensation paid to it during these years under temporary mail rates applicable to its domestic system as hereinafter explained. 
During the year 1947 the airline industry experienced heavy losses due to a combination of adverse factors. Starting as far back as September 1946, there was an unusually severe decline in air transportation traffic generally, because of adverse weather conditions and because of an unfortunate series of airline accidents, both domestic and foreign. The flying conditions in the months of January, February, March, and December were, in our area of operation, the most difficult in our history. 
Moreover, Colonial's losses for 1947 reflect development expenses incident to the opening of the Bermuda route covering heavy initial advertising and promotion required, as well as the necessary training and qualifying of pilots and other personnel in accordance with the Civil Aeronautics Administration's regulations.
In summary, a combination of the decrease in public demand, the absorption of developmental expenses on our Bermuda run, plus a continuation of rapidly rising labor, material and overhead costs was responsible for unusual loss in 1947.
In May 1946 your Company was certificated by the Civil Aeronautics Board to operate between New York and Bermuda and between Washington and Bermuda. These additional routes brought our certificated miles up to 2,967 and gave the Company a year-round good weather route for the first time in its history. In order to finance the development and provide equipment for the route, the Company sold on February 26, 1947 an additional 150,000 shares of its unissued capital stock and $1,266,638 was realized from this source. A part of the proceeds of this financing was used for the purchase of two four-motored Douglas DC-4 airplanes, spare engines, and other necessary parts and equipment, and on August 1, 1947, the Company inaugurated daily scheduled service to Bermuda.
 On January 26, 1948 the Civil Aeronautics Board awarded your Company a permanent air mail rate on its Bermuda route of 91c per airplane mile retroactive over developmental period August 1, 1947 through February 29, 1948. For the two year period from March 1, 1948 through February 28, 1950, mail revenue is to be paid on the basis of a self-adjusting formula which provides for a rate ranging from 52c per airplane mile based on a revenue passenger load factor of 43 percent and below, to a minimum rate of 10c per airplane mile when the load factor reaches 67 percent and above. After March 1, 1950 mail compensation will be paid at the rate of 75c per mail ton-mile subject to certain minimum capacity factors. 
As to the mail rate applicable to the domestic routs of your Company, the 1947 figures include mail pay at the inadequate temporary rate of 20c per airplane mile. In order to put a stop to the continuing depletion of our resources through the application of this low rate, your management, a few months ago, filed a petition with the Civil Aeronautics Board requesting an increase from the temporary rate of 20c to a rate of 50 per airplane mile. On March 4, 1948, the Civil Aeronautics Board issued an order increasing the temporary rate of 35c per airplane mile effective January 1, 1948. Had this temporary rate of 35c per airplane mile been in effect retroactively to April 1946 your company would have received additional mail compensation amounting to $804,000; mail pay for 1947 would have been increased by $434,000 and the loss for the year 1947 would have been reduced to $640,000.
The establishment of this 35c temporary rate by the Civil Aeronautics board was a stop-gap measure only, and when the board finally decides your Company's permanent mail rate when established by the Board, must, in accordance with the provisions of section 406 of the Civil Aeronautics Act, provide mail compensation which, together with all other revenues, will enable the Company to maintain and to continue the development of its air transportation services and provide a reasonable return on its investment devoted to these services. Upon the basis of our actual operating results for the past two years, we confidently expect that the mail rate as finally established for our domestic system will be considerably in excess of the 35c per mile temporary rate recently allowed by the Board. 
On March 18, 1947 the Civil Aeronautics Board served an order on your Company as it did in the case of several other airlines, which provided, among other things, that a factual study be made of the "economic characteristics of its (Colonial's) route system, including all factors both beyond and within the control of management, which may contribute to the uneconomical operations of that system, together with the detailed recommendations and supporting reasons designed to remedy deficiencies". The management of Colonial welcomed the opportunity to point out to the Civil Aeronautics Board the factors which would make the operation of our system more efficient and economical since action on the part of the Civil Aeronautics Board would appear to be required based on the results of such factual study. 
Your Company, in response to this order submitted to the Board in April 1947, a full report analyzing its routes, operations and future financial requirements. The Company made available to the Board all information necessary for any corrective action and submitted to an investigation and complete audit by the Board's representatives which lasted over three months. The management's recommendations and the results of the investigation both underlined the fact that a considerably more efficient operation would result if our Route 71 and 72 could be linked by awarding Colonial a connection between New York and Washington, D. C. and a route from New York to Binghamton and Buffalo or between New York, Syracuse and Buffalo. It was evident that this simple expedient would, over night, provide a much greater utilization of equipment and crews and would substantially increase our operation revenue and efficiency.
In March of 1947 the Civil Aeronautics Board Examiner recommended to the board that similar connections be awarded Colonial in the Middle Atlantic Area Case, Docket No. 647 and based his conclusions and recommendations upon almost identical logic to that relied upon in our report.
Near the end of 1947, however, the Civil Aeronautics Board was thrown into a state of confusion due to the termination of the tenure of office of its chairman, James M. Landis, without reappointment and the resignation from the Board of member Clarence Young. Subsequently, member Harllee Branch submitted his resignation to become effective May 1, 1948, thus leaving the regularly constituted Board of five members with only a bare quorum of three members, one of whom had submitted his resignation.
The Middle Atlantic Area Case was not reached on the Board's docket for final determination until February 1948 and therefore only three members participated in the decision. Each of the applications of your Company for connecting routes was denied by the order and opinion issued by the Board. However, one of the three remaining members, Mr. Josh Lee, strongly dissented in favor of awarding the New York-Washington route to Colonial.